Highlights
CPI inflation in May turned negative on continued significantly lower energy costs. Meanwhile, the core rate held steady and moderately warm. The consumer price index fell 0.3 percent in May, following no change the month before. The consensus forecast was for a 0.2 percent decline. Excluding food and energy, the CPI gained 0.2 percent, compared to 0.2 percent in April. Analysts projected a 0.2 percent rise.

By major components, energy dropped a monthly 4.3 percent after falling 1.7 percent the prior month. Gasoline declined a sharp 6.8 percent, following a drop of 2.6 percent in April. Food prices were unchanged in May, following a 0.2 percent gain in April.

Within the core, the indexes contributing to the increase were largely the same ones as in April: shelter, medical care, used cars and trucks, apparel, airline fares, and new vehicles. The indexes for household furnishings and operations and for tobacco declined.

Year-on-year, overall CPI inflation eased to 1.7 percent from 2.3 percent in April (seasonally adjusted). The core rate remained at 2.3 percent on a year-ago basis. On an unadjusted year-ago basis, the overall figure was up 1.7 percent in May, compared to 2.3 percent in April while the core was up 2.3 percent, matching April's rate, not seasonally adjusted.

The obvious good news from today's CPI report is that consumers are paying less at the gas pump, freeing up some money to spend elsewhere. Yesterday's 0.2 percent decline in May retail sales turns slightly positive in real terms with the CPI dropping 0.3 percent. But within the Fed, there likely will be diverging opinions on inflation. Headline numbers are favorable but the core is stubbornly on the warm side.

Recent History Of This Indicator
The consumer price index posted at unchanged in April after a 0.3 percent boost the prior month. Excluding food and energy, the CPI rose 0.2 percent, matching the March pace. By major components, energy fell 1.7 percent after jumping 0.9 percent in March. Gasoline dropped 2.6 percent, following a 1.7 percent rise the prior month. Food price inflation held steady at 0.2 percent. Within the core, apparel prices posted a notable gain while recreation declined. New and used vehicles saw notable increases in prices.

Definition
The Consumer Price Index is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. That is the index shows the change in price levels since the index base period, currently 1982-84 = 100. Monthly changes in the CPI represent the rate of inflation.
Why Investors Care

It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations.Data Source: Haver Analytics

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI.Data Source: Haver Analytics